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Wednesday, May 29, 2024

Commissioners agree to $1.5M cashflow cushion for Northside Food Co-op, some take issue with city land deal

The county’s memorandum of understanding outlined how New Hanover County will help oversee the Northside Food Co-op’s construction and financial viability. (Courtesy NHC)

NEW HANOVER COUNTY — Another step was made this week in the forward movement of the Northside Food Co-op grocery store planned for 10th and Post streets by 2026 — but it didn’t come without debate, confusion and requested changes to the county’s memorandum of understanding and a deed revision for city-owned land.

READ MORE: NHC Endowment invests nearly $6.8 million for Northside grocery store

New Hanover County Commissioners were poised to sign off on an MOU with the Northside Food Co-op to solidify the responsibilities of each party. The county will invest millions to help build the grocery store, located in a food desert, and act as the fiscal agent of a multi-million-dollar endowment grant the co-op received last month.

The MOU states the county would lease the soon-to-be-constructed building — including maintenance, repairs, and utilities — for $1 a year for the first nine years. The lease would be re-evaluated in year six with consideration to the co-op’s financial operations.

The county is helping fund the construction of the grocery store for $2.4 million and will subsidize Northside’s operational expenses for up to $1.5 million in its first five years as needed. The cashflow would kick in if the co-op’s working fund balance falls below three months of operational expenses, which amounts to $500,000.

“We believe this support is necessary to put the store in the best possible position for long-term success,” finance director Eric Credle told the commissioners. “Starting up a new business usually results in early losses. We believe that will be the case also with this grocery store, which is in an industry that operates on thin margins.”

He cited an example in year one, indicating a $377,000 negative cash flow, with a $423,000 remaining cash balance. That would cost the county $77,000 to subsidize operational support. 

Credle explained a range of losses can be expected anywhere from a little more than $1 million (low) to $1.6 million (catastrophic).  

“At the end of the five years, the county will be in a much better position to determine whether our continued support is necessary,” Credle said.

“Well, everybody needs to go and shop there,” Chair Bill Rivenbark said later in the meeting. 

The co-op grocery store will be located in the 900 block of N. 10th St. on city-owned land donated to the effort in August 2022; the land’s tax evaluation is $113,000. In 2021, the city also gave $125,000 in ARPA funds to the co-op.

The grocery store has escalated in price since first being pitched in 2022, when the county agreed to put forth $2.15 million to construct a new building. But last year it identified a need to budget $7 million to build the store. 

The county said in spring 2023 it would look for grants or other investment opportunities to help offset the tally. Last month, the New Hanover Community Endowment executed a nearly $6.8 million grant to bring the project to fruition, to be paid out over the next three years. This leaves the county funding 26.5% and the endowment 73.5% of the Northside Food Co-op.

The overall investment is $9.4 million, with costs estimated to be $9.2 million today.

According to Seven Roots grocery consultant — hired for $70,000 by the county to conduct a feasibility study — increased pricing is due to the rise in construction materials, incorporation of site work and proposed extension of Post Street, as well as inflated prices of refrigeration, a prominent need in furniture, fixtures and equipment for the grocery store.

Equipment will be roughly $1.4 million, according to Credle, with initial inventory costing $250,000. Pre- and post-opening expenses are $283,000, with working capital of $800,000 and an overall project contingency of $840,000, equaling 10% of the overall budget.

“We believe these two amounts help ensure that the project gets completed and has adequate financial strength and liquidity to start operations,” Credle said.

The county will not be involved in Northside’s daily operations. Rather the grocery store will be overseen by a general manager, hired nine months before the co-op’s official opening. The grocery store will have a separate account for its operations, employee and staff salaries, taxes, inventory and expenditures.

The co-op will report to the county its monthly financial statements, allow full access to financial records, fulfill an annual audit, and report to the commissioners with an update annually.

“The county’s early financial support will allow the store to tailor operations to its location and customer base,” co-op project manager Cierra Washington told commissioners. “The co-op will also be working diligently to open strong and as the store matures, we will adapt as needed with the expert guidance of our county team, our Seven Roots team and our community at large. … Our success story will serve as a model of community government collaboration for other communities to copy.”

The co-op, established with bylaws and its board of directors in 2020, was heralded last year with the Up & Coming 2023 Start-up Innovator Award, recognizing the launch of cooperative organizations. Washington said other counties and municipalities have reached out to learn how they’ve organized. 

The co-op consists of community members who have purchased a one-time membership for $100. It gives them part ownership of the enterprise, to help guide the grocery store’s future decisions, such as products that will be carried and standards of pricing, as determined by their votes. Patron members also will gain access to promotions and will be able to run for its board of directors. The money from memberships has helped fund co-op staff and community projects that have been going for a few years now, including monthly community dinners and weekly farmers’ markets. 

Washington said the members are kept abreast of what’s happening with the co-op through newsletters and during its annual meeting. 

Commissioner Jonathan Barfield has been a proponent of the project and praised the team for its efforts. Having resided on the Northside’s McRae Street in his mid-20s, he said he experienced firsthand the effects of living in a food desert. 

Based on data from the USDA, the Northside is one of eight food deserts in New Hanover County, meaning there’s restricted access to nutritious, affordable groceries.

“You can be in a food desert and not really know that you’re in a food desert,” Barfield said, noting the closest grocery store in 1988 was in Castle Hayne or near Burnt Mill Creek, beside the Wilmington National Cemetery. He and his wife had transportation and could easily drive for groceries.

“But the quality was not all that great,” he said, “and I think of older individuals who don’t have a car, and how going to a grocery store to get dairy products and meat products, but having to wait at bus stops and what that does to products.”

By comparison, he said his current residence has an Aldi within walking distance or a Publix three-quarters of a mile away. Downtown has lacked a grocer for years, though it saw the opening of Better Basket in 2021. Barfield said the food co-op will serve all of downtown, not just the Northside, particularly considering new apartments that have been built on the north end of the Riverwalk in the last few years.

“I’m believing that you are going to have much success,” Barfield told the food co-op leaders. “Because food is fundamental to life and having access to quality produce and quality foods again will go a long way in giving longevity to young boys and girls lives, so I commend you for the work you’re doing.”

But what about the land?

The grocery store will be built on 10th Street on land donated by the City of Wilmington. (Port City Daily/Shea Carver)

Concerns were raised by some commissioners regarding the county’s role in the project, including liability and who would actually own the land should the project not be able to sustain itself in the future. The City of Wilmington already transferred the land deed to the county, but there is a provision that states should it not remain a grocery store, the land would return to the city.

“I know we all want this to succeed,” Vice Chair LeAnn Pierce said to her colleagues and co-op leaders on Monday. “But I always like to prepare for the worst and if we build a $9-million dollar building on that piece of land we don’t own, I’m concerned about that.”

County manager Chris Coudriet was clear staff acted “within the context of the direction given” to them and the land was deeded over already. The project was voted on in 2022 before Pierce and Commissioner Dane Scalise were on the board; however, meetings have taken place since regarding cost escalation and best ways to bring the project forward.

Throughout the process, Coudriet added, staff has tried to remain clear about the terms; he also pointed out the donation was well-reported locally. 

The MOU presented Monday further highlighted particulars unbeknownst to Pierce and Scalise — specifically: “If property is not used for the purpose of a grocery store, the parcel and any permanent improvement upon it may revert to the City of Wilmington.”

Coudriet said this wasn’t “new” language. 

Pierce clarified she wasn’t suggesting as much, only being explicit she wasn’t aware of the arrangement.

“As a business owner and as an investor and keeper of the citizens’ purse, I can’t in good conscience go forward with something that we’re going to invest $10 million in and then find out 20 years, 30 years from now we’re giving it to someone else,” she said. “Nothing against the food co-op, that’s my job.”

Scalise was clear he, too, missed the fine print.

“I did not realize that it was structured in this way until today,” he said. “The city has donated a piece of property that is worth approximately $113,000; we’re making an investment of $5 million. The endowment is making an investment of $7 million. I think that we need to make sure that our partners at the city are on the same page with us about what will happen to this building.”

Coudriet reminded the board it had the documents for a week and had he known during the county’s agenda briefing — commissioners meet Thursdays ahead of Monday meetings to hash out issues and adjust information as need be — he could have scheduled to be in front of city council Monday or Tuesday to address any problems. 

“Perhaps it’s Pollyanna-ish on my part to believe that it is, in fact, going to be successful and this is a bridge that the county nor the Northside Food Co-op or the city would have to cross, but we have made known the standards of how it was transferred to the county,” Coudriet added.

Credle told council earlier during staff’s presentation they expected the co-op to gain traction in the first few years and optimize operations to break even.

Scalise said the county cannot be “prognosticators” who foretell the future. 

“And, Mr. Manager, this is a rather substantial document that we have today,” he told Coudriet. “We have quite a few matters of public importance that we have to go through. I apologize that there was one provision in the MOU that I did not fully appreciate the legal significance of. But the reason that we have public hearings is precisely so that we can flag issues like this, and I would be derelict in my duty if I didn’t recognize something whenever it was brought to my attention and flag it as an issue for the members of this commission.”

Pierce wanted to know how land can even transfer back with a new building on it. Coudriet acknowledged it was a reasonable question but added the county and city have worked well together in the past. 

“I believe that the city, so long as there’s a commitment to ensuring that the community is well served, that there will remain a solid partnership,” he said. 

Zapple pointed out the problem they faced was only a few words: “for the purpose of a grocery store.” He thought “creative minds” could loosen the language to state the property would benefit the community.

“That would eliminate a whole lot of the heartburn that’s happening here,” he said. 

“I’m not trying to jam up the deal,” Scalise said. “But I need to look out for the citizens who are investing in this project.”

Facilities manager Sara Warmuth told commissioners earlier that upon approval of the MOU, a request for qualification could be disseminated immediately to find an architect. If all moves according to plan, the project would be put out for construction bid by 2025.

Scalise motioned to move the vote on the MOU to April. Pierce seconded it, but Barfield chimed in to amend the motion instead. He suggested to pass the MOU, contingent upon county management working out details that the property would not revert back to the city if it wasn’t a grocery store.

It passed 4-1, with Pierce dissenting.

Since Monday’s meeting Coudriet has been in contact with city manager Tony Caudle about revising the deed. An email between the parties indicates the update includes the city will “convey the property to [the county] with no restrictions.”

Coudriet wrote to Caudle the request is reasonable given the amount of investment all parties have put forth, including county staff’s “considerable, long-term effort.” He said the county wants to “protect its $9 million investment.”

“I could understand the City making the initial grant contingent upon us approving this project to move forward, but now that we have, I believe that they shouldn’t retain any ability to restrict or limit future use of the property. Given our investment, we should be able to use it as we see fit in perpetuity,” Coudriet explained in the email.

A resolution is to be placed on the April 2 agenda for city council to consider, with Coudriet in attendance to answer questions. Caudle wrote to council it will include the removal of a “reverter clause,” clarifying the county’s ownership will have no stipulations placed on the property’s use, sans what’s allowed under the city’s zoning regulations.

Caudle added he discussed it with the city attorney and the deed would have to be transferred from the county back to the city and return to the county again, amended.

“I see Council’s reconsideration of this issue as the only way in which to assure clear resolution of the matter,” Caudle wrote to the city. “I understand that this may be a bit confusing. It certainly has been for me over the course of the last 24 hours. The County Manager and I have discussed various alternatives surrounding the transfer of this property, but these are the stipulations on which the County has landed.”

Catch up on all previous PCD coverage of the Northside Food Co-op here.

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Shea Carver
Shea Carver
Shea Carver is the editor in chief at Port City Daily. A UNCW alumna, Shea worked in the print media business in Wilmington for 22 years before joining the PCD team in October 2020. She specializes in arts coverage — music, film, literature, theatre — the dining scene, and can often be tapped on where to go, what to do and who to see in Wilmington. When she isn’t hanging with her pup, Shadow Wolf, tending the garden or spinning vinyl, she’s attending concerts and live theater.

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